Medium-Term Business Vision · 2021. 4. 21. · Withdrawal of Numerical Management Targets and...

Medium-Term Business Vision

December 11, 2020

Kyushu Railway Company

Toshihiko Aoyagi

President and CEO

JR KYUSHU IR DAY

Ⅰ ．2030 LONG-TERM VISION AND MEDIUM-TERM BUSINESS

PLAN 2019-2021

2

Our 2030 Long-Term Vision That Remains Unchanged Amid COVID-19

We will contribute to the sustainable development of Kyushu through city-building initiatives that leverage the distinctive characteristics of local

communities, centered on safe and secure mobility services.

2030 Long-Term Vision

3

• As a corporate group providing mobility services in Kyushu, taking steps to respond to population decline, natural disasters, and other threats. To that end, taking on the challenge of establishing sustainable mobility services based on a foundation of safety and security by utilizing new technologies and implementing cooperation with other companies.

• Contribute to a Kyushu where people want to live, work, and visit through city-building initiatives centered on mobility services (expanding the resident and nonresident populations and creating employment)

Initiatives to increase the population in areas around our railway lines

Declining population in Kyushu, where the pace of thedecline exceeds that in the nationwide population

100.0

93.7

100.0

92.2 90

95

100

105

110

2015 2020 2025 2030

Index(2015 = 100)

Nationwide

Kyushu

(Year)

Source: Estimated population nationwide andin the 7 prefectures of Kyushu(National Institute of Populationand Social Security Research)

4

Position and Priority Initiatives ofthe JR Kyushu Group Medium-Term Business Plan 2019‒2021

Withdrawal of Numerical Management Targets and Reference Indicators(Announced on November 4, 2020)

Due to the influence of COVID-19, the operating environments for the Group’s businesses are changing significantly. The Company determined that the achievement of the targets in the Medium-Term Business Plan, for which the final year is the fiscal year ending March 31, 2022, will be difficult. Accordingly, the Company decided to withdraw the numerical management targets and reference indicators.

The three priority initiatives are “Further strengthen our management foundation,” “Further strengthen our earnings power in key businesses,” and “Growth and evolution in new areas.” With consideration for circumstances, the Company will continue to advance measures based on these initiatives, including the implementation of revisions.

Current Medium-Term Business Plan (FY2020/3-FY2022/3)

Numerical management targets and reference indicators

Three priority

initiatives

November 2020Withdrawal of numerical management targets and reference indicators

Proceed while revising as necessary

・Further strengthen our management foundation・Further strengthen our earnings power in key businesses・Growth and evolution in new areas

Numerical management targets: Operating revenue, ¥480.0 billion; Operating income, ¥57.0 billion; Revenues from railway transportation, ¥154.0 billion

Reference indicators: Capital investment, ¥340.0 billion; Operating cash flow, ¥220.0 billion; ROE, 8% or more

March 2019Formulation of Medium-Term Business Plan

May 2021 (Planned)

Announcement of FY2022/3 performance forecasts (Planned)

Withdrawn

Consideration of establishment of next medium-term business planIdentify issues based on anticipated year-end balance sheet 5

6

Management Approach for the Post-COVID-19 Era

Proceed without changes

Address shifts in business environment

Ongoing issues

Population decline in Kyushu outpacing that of the entire nation

Response to intensifying natural disasters

Impact of COVID-19

Following of guidelines to prevent infection and greater awareness of hygiene

Avoidance of unnecessary outings and less need to move about due to prevalence of remote work and other factors

Disappearance of inbound tourism demand and invigoration of micro-tourism

Impact on Business Strategies

Noticeable changes to customer needs Revise operations according to temporary and

permanent shifts in business landscape stemming from COVID-19

Impact on Financial Strategies

Substantial increase in interest-bearing debt over the short term

Steadily proceed with strategic city-building and community development initiatives by incorporating cyclical investment model into real estate development

《Management Plan Framework》

Long-term vision

What we aim to beAnd our conduct

Medium-Term Business Plan 2019‒2021

Annual business policies

Future Strategy

7

Further strengthen our management foundation

Build sustainable railway services by improving earnings

Implement strategic city-building initiatives in the regions around our business areas

Growth and evolution in new areas

Revising segments and portfolios

Advancing measures to increase revenues (increasing Shinkansen, inbound, and short distance earning power, etc.)

Increasing the value of city-building initiatives with stations as bases stations

Expanding business areas that leverage the strengths we have cultivated

Taking on the challenge of new mobility services

Major initiatives to date Future Strategy

Advancing measures to increase efficiency (station system reevaluation, Assist Mars, SSS, consignment, etc.)

Further strengthen our earnings power in key businesses

Advancing JR Kyupo and implementing Companywide digital transformation

Basic policy(priority initiatives)

Accelerate

New

Growth field focus, M&A investment

Controlling hiring, mobilizing personnel, strategic human resource development

AccelerateTransition to Internet reservations, ticketless serviceBaggage transport using the Kyushu Shinkansen, etc.

Continue

New

City-building in regional basesContinued development at Miyazaki, Kumamoto, Hakata, etc.

Considering private REIT formation

Reevaluating new development (hotels, overseas, etc.)

AccelerateVarious measures to increase productivitySSS, Assist Mars, expanded one-person train operation, etc.

Revise/control

New Lowering the break-even point in the hotel business

Accelerate Rearranging businesses and reorganizing the Group

New Revision to flexible schedules aligned with the demand

AccelerateAccelerating digital transformation by developing/securing human resources

Continue Advancing initiatives centered on MaaS


7

Ⅱ．REFORMING STRATEGIES AMID COVID-19

8

Reforming Strategies in the Railway Business

9

9





Advancing measures to increase revenues (increasing Shinkansen, inbound, and short distance earning power, etc.)

Advancing measures to increase efficiency (station system reevaluation, Assist Mars, SSS, consignment, etc.)


Advancing JR Kyupo and implementing Companywide digital transformation


AccelerateTransition to Internet reservations, ticketless serviceBaggage transport using the Kyushu Shinkansen, etc.

AccelerateVarious measures to increase productivitySSS, Assist Mars, expanded one-person train operation, etc.

New Revision to flexible schedules aligned with the demand

AccelerateAccelerating digital transformation by developing/securing human resources


0%

20%

40%

60%

80%

100%

120%

Apr. May June July Aug. Sept. Oct. Nov. Mar.

Handling revenues Commuter revenues (cumulative)

Short distance revenues Medium and long distance revenues

75.9％

78.3％

51.4％

Trends and FY2021/3 forecasts of handling and other revenues

（preliminary）

Commuter

Non-commuter

approx. 90%

approx.60％ to 70%

10

Overview of the Railway Business

Advancement of initiatives for cleaning the interior of facilities and following guidelines to prevent infection so that customers can use our railway services with peace of mind

Establishment of joint initiatives with national and local governments, including the suspension of operations of all conventional-line limited-express trains during the Golden Week holiday period to prevent the spread of infections resulting from inter-prefectural travels

Railway transportation revenues

Commuter revenues and short distance revenues are expected to recover relatively quickly and likewise with surrounding businesses

Medium and long distance revenues subsided while railway transportation revenues remains stagnant overall

Initiatives for customers’ safety and peace of mind

Screen of ticket sales machine

Opening windows

Increase in number of

railway passengers

Increase in number of people in

areas surrounding

stations

Increase in number of

station building

store customers

11

Promotion of Revenue-Enhancement Measures ①

Fostered new demand through collaborations with Disney, Pixar, the popular TV animation Demon Slayer: Kimetsu no Yaiba, and Japanese idol group HKT48

Extended sales of the unlimited-travel Minnano Kyushu Tickets to December due to popular demand

Departure ceremony for the full opening of the Hohi Main LineNew tourist train named 36+3 Began operation of the new tourist train named 36+3,

which travels around Kyushu over the course of five days, in October. Collaborated with local governments and local community residents to propose new ways of enjoying travel incorporating the appeal of Kyushu

Started the “Switch On! Hohi Main Line Full Opening Project” on the Hohi Main Line, which resumed full operation for the first time in four years, in August

Discussions underway for the implementation of baggage transport using the Kyushu Shinkansen

Plan to undergo verification testing with Sagawa Express Co., Ltd.Pursue new earnings opportunities by making effective use of available space inside the Shinkansen

©2010 Kumamon (Kumamoto Prefectural Government)

Collaboration with local governments and local community residents for the launch of a new tourist train and the promotion of recovery of regional routes

Target new customer base through collaborative efforts involving popular trends

Hakata → Kagoshima-Chuo (downbound)

Sagawa Express Fukuoka

Sales Office

Hakata

Sta

tion

(S

hin

kan

sen

)

Kag

osh

ima-C

hu

o

Sta

tion

(Sh

inkan

sen

)

Sagawa Express

Kagoshima Sales Office

[Sagawa Express Fukuoka Sales Office]

Attach dedicated box

[Sagawa Express Kagoshima Sales Office]

Detach the dedicated box

Fasten the dedicated box and transport via the Shinkansen

12

Promotion of Revenue-Enhancement Measures ②

Implemented across-the-board discounts on paper train tickets in the past to maintain competitiveness with other transportation companies

Setting of prices in tune with demand and maximization of earnings opportunities in recent years through a focus on online sales

Discontinued sales of a certain set of tickets in 2018. Plan to expand share of online sales going forward

Use of EX-IC Service

Plan to expand EX service area for the Kyushu Shinkansen through an agreement with Central Japan Railway Company and West Japan Railway Company(EX reservation service to be launched in spring 2022)

Maximizing earnings opportunities through online sales

175 200 291

386 457

128 143

207

267 313

0

200

400

0

200

400

600

16.3期 17.3期 18.3期 19.3期 20.3期

件数

金額（右軸）

Fares

Charges

Implement across-the-board discounts to increase our competitiveness versus other transportation companies

Regularprice

Discounttickets

Promoting shift to online

sales

Previously

Fares

Charges

Controlling unit sales of discount tickets and discount rates in line with demand

Current initiatives Internet train reservation services:Number of reservations, sales (¥bil)

(10,000 reservations）

12.814.3

20.7

Sales (right)

Number of reservations

FY16.3 FY17.3 FY18.3 FY19.3 FY20.3

20

0

26.7

Regularprice

Discounttickets

31.340

13

Advancement of Efficiency Measures ①

Discontinue operation of certain conventional-line limited-express trains until further notice while adapting readily at times of higher demand through expanding train service and other measures

(Reference) Congestion Status of Trains Arriving at Hakata Station (7 a.m. to 10 a.m.)

Establishment of flexible schedules reflecting changes in demand

(Recently enacted measures)・September 18

Discontinued operation of certain conventional-line limited-express trains from November until further notice due to insufficient customer demand

・November 5Resumed operation of certain limited-express trains, which were scheduled to be suspended, during November 21-23 (extended holiday) due to high number of reservations

Usage during morning rush hour is trending upward, while usage during daytime and night-time hours remains sluggish.Considering the possibility of revisions to trains and time periods with excess transportation capacity as part of schedule changes to be implemented in the following year

May 18, 2020 (Mon.) to May 22, 2020 (Fri.) * After lifting of state of emergency

Train Line / Segment 7:00~ 7:15~ 7:30~ 7:45~ 8:00~ 8:15~ 8:30~ 8:45~ 9:00~ 9:15~ 9:30~ 9:45~

Kagoshima Main Line

(downbound)

（Kashii ⇒ Hakata）

Kagoshima Main Line

(upbound)

（Minami Fukuoka ⇒

Hakata）

November 16,2020 (Mon.) to November 20,2020 (Fri.)

Train Line / Segment 7:00~ 7:15~ 7:30~ 7:45~ 8:00~ 8:15~ 8:30~ 8:45~ 9:00~ 9:15~ 9:30~ 9:45~

Kagoshima Main Line

(downbound)

（Kashii ⇒ Hakata）

Kagoshima Main Line

(upbound)

（Minami Fukuoka ⇒

Hakata）

【Congestion Levels】

Not congested

Congested

No seats available

No hanging straps available

Advancement of Efficiency Measures ②

Expanding trains operated by one personExpanding these trains while securing safety through platform monitoring measures, etc.

Advancing self-driving(FY2021/3: Planning to start test operations, with train drivers on board trains that are used to carry passengers)

Implementing maintenance inspections through the use of drones and robots

Track monitoring using passenger trainsA camera system featuring elemental technology was instituted for the first time in Japan on our passenger train. This system will contribute to improving the efficiency of certain inspection work on our railway facilities as well as to enhancing the quality of our facilities and the safety of our personnel.

Operations

Maintenance

14

Introducing Assist Mars (ticket sales machines equipped with intercoms)

Introducing Smart Support StationsThe operators at our support centers monitor for safety and assist customers through the use of surveillance cameras at intercoms installed at train stations.

Remote monitoring, guidance

Service

Train LineNumber

of Stations

SegmentImplementation

Date

Kashii Line 14 Saitozaki-Umi March 2015

Chikuho Main Line

11 Wakamatsu-Shinnyu March 2017

Oita Region

3 Maki, Kozaki, Takio March 2018

2Shikido, Oita-Daigaku-

MaeDecember 2018

Ibusukimakurazaki Line

11 Korimoto-Kiire May 2020

Train Stations with Smart Support Station

Smart Support StationAssist Mars

Advancement of Efficiency Measures ③

Joint development of CBM for railway signal facilities with Nippon Signal Co., Ltd. and Kyosan Electric Mfg. Co., Ltd. (June 2019)

Joint development of solutions with A.L.I. Technologies for railway facility inspections using drones (July 2019)

Identify areas within our railway business operations and back office work where costs can be reduced and review the significance of business processes from the ground up through the efforts of the newly formed organization

Utilizing digital technology, optimize existing businesses, such as marketing and office work, and reform operations through the creation of future businesses

Operating Data of Electrical Switch(Steady state monitoring system)

Reducing costs by leveraging digital transformation and business process re-engineering strategies

Collaboration with other transportation companies and venture companies

15

【Maintenance vision for railway signal facilities】

Optimization through enhancement of existing businessesReform through the creation of

future businesses

Customers(Maximizing earnings)

In digital areas, strengthening customer contact points and

promoting marketing

Operations(Increasing efficiency / reducing costs)

Using digital/ICT technologies that contribute to efficient operational

administration

Office work(Enhancing productivity,

diversifying working styles)

Using digital technologies to reform working styles

Future business/operations

Taking on the challenges of creating new businesses and services and of

reforming operations

Reforming Strategies in the Real Estate and Hotel Businesses

16





Increasing the value of city-building initiatives with stations as bases stations




ContinueCity-building in regional basesContinued development at Miyazaki, Kumamoto, Hakata, etc.

New Lowering the break-even point in the hotel business

City-Building in Regional Bases ①

JR Miyako Twin Building

Himuka Kirameki Market【Under elevated railway tracks】

Souvenirs / food and beverages / sundries / services (commercial facility floor space: 2,700 ㎡)）

*Joint development with Miyazaki Kotsu

Umi-kan (commercial facility floor space: 9,800 ㎡)

Yama-kan (commercial facility floor space: 6,300 ㎡)

Opening day at “Himuka Kirameki Ichiba”Opening day at “Amu Plaza Miyazaki”

17

Miyazaki Station west entrance development

Opening of “Amu Plaza Miyazaki” on November 20, 2020(Implementing advance opening of “Himuka Kirameki Ichiba,” a commercial facility located under elevated railway tracks, on October)

There were some contract cancellations in the commercial area due to the influence of the COVID-19 infection, but all stores have already been determined.

In the office area, we continue to implement measures to attract tenant.

1st to 6th floors: Commercial facilities

(5th & 6th floors: Cinema complex)

7th to 10th floors: Offices

1st to 6th floors: Commercial facilities

Miyazaki Station

→Central urban district

JR Miyako Twin Building

Umikan Yamakan

HimukaKiramekiMarket

City-Building in Regional Bases ②

Kumamoto Station area development

Opening of “Amu Plaza Kumamoto” scheduled for April 23, 2021

Tenant leasing in commercial areas is progressing steadily, with approximately 50% of tenants opening stores for the first time in Kumamoto Prefecture. Leases for the two office buildings performed favorably as well.

Approximately 4,500 jobs and nearly 1,000 accommodations are expected to be created as a result of this initiative

18

JR Kumamoto Station Building

JR Kumamoto Station BuildingApril 23, 2021: Planned openingTotal floor space: Approximately 109,000㎡Number of hotel rooms: 203 rooms (planned)1st to 8th floors: Amu Plaza Kumamoto

(commercial, weddings)9th to 12th floors: THE BLOSSOM KUMAMOTO (hotel)

Rental apartments

Amu Plaza Kumamoto Station square(Shinkansen gate)

Station square(Shirakawa gate)

Shirakawa Building

Parking lots

KasugaSouth

Building

CondominiumsKumamoto Station

Parking lots

JR Kumamoto Shirakawa Building

December 2020: Planned start of construction(Opening of commercial facilities planned for spring 2021)Total floor space: Approximately17,000 ㎡1st to 3rd floors: Amu Plaza Kumamoto (BicCamera）4th to 12th floors: Offices

RJR PreciaKumamoto Ekimae

January 2021: Start of construction (planned)Total number of units: 144 units

MJR Kumamoto The Tower

February 2023: Start of construction (planned)Total number of units: 230 units

JR Kumamoto KasugaSouth Building

December 2020: Planned start of construction(Opening of commercial facilities planned for spring 2021)Total floor space: Approximately 3,600 ㎡1st floor: Commercial, services2nd to 4th floors: Offices

19

Lowering the Break-Even Point in the Hotel Business

Diversify our product lineup to address needs unlike those of the past such as subscription-style accommodations, monthly plans for hotels, and serviced offices

Review of operational system, including the joint procurement of hotel supplies, internalization of consigned services, and reevaluation of workforce requirements

Converting hotel rooms to business offices（THE BLOSSOM HIBIYA）

Launch of monthly plan（THE BLOSSOM HAKATA Premier）

Establishment of products catered to changing lifestyles

Review of operational system

・Gradual recovery expected for domestic demand・Challenging conditions to continue for inbound

tourism demand

・Fluctuation in domestic demand・Disappearance of inbound

tourism demand

・Steadily remained at 80% level・Inbound tourism accounted for

roughly 20%

Promote initiatives toward immediate

return to profitability

Change in occupancy rate (by quarter)

Reforming Business Portfolio Strategies

20






Expanding business areas that leverage the strengths we have cultivated




Reevaluating new development (hotels, overseas, etc.)Revise/control


21

Hydrofoil Ferry Business ①

Established in 1991, our hydrofoil ferry business transports passengers between Japan and South Korea, mainly between Fukuoka and Busan.

Through emphasis on hydrofoil ferries in the early 2000s and on low-cost carriers (LCCs) in recent years, our share of the overall market has continued to grow.

Index (Users) 2004 2018

Japan-South Korea route 100 172

Air route 100 1,167

Beetle 100 51

0%

20%

40%

60%

80%

0

300

600

900

1,200

1,500

1,800

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

空路

海路(その他)

コビー

ビートル

空路シェア【右軸】

(Thousand people)

Market growth via hydrofoil

ferries

Market growth via

LCCs

Joint service with Kobee(from April 2006 to March 2016)

Number of users and market share

* Compiled by JR Kyushu using data provided by the Busan Port Authority and Korea Airports Corporation

Air route

Sea route (other)

Kobee

Beetle

Market share of air route (right)

22

Hydrofoil Ferry Business ②

Preparations underway for the introduction of a leisurely cruise that starts and finishes at Hakata Port until the Japan-South Korea route resumes.

Currently examining all possibilities for the jetfoil-type Beetle (three units), including their sale

Differentiating from LCCs through introduction of the Queen BeetleTravel time and passenger capacity

Devoted to providing pleasant travels

The Queen Beetle offers a relaxing lounge, a duty-free store, and an observation deck, in addition to business class seating. As passengers are not required to use a seatbelt, it allows for a renewed and enjoyable travel experience.

An assortment of seating options is available, including booths and tables. Featuring an abundant space to store large baggage and bicycles as well as a kids room, it caters to a wide range of tourists.

Offering significantly greater capacity, it can now accommodate large groups such as for school trips, which was not possible in the past.

One Queen Beetle to be operated for the time beingKids roomCabin Observation deck

(Travel time)

(passenger capacity)

Travel time up by 35 minsSignificantly greater comfort

1 hr.. 2 hrs. 3 hrs. 4 hrs.

23

Postponement and Control of New Developments and Approach to Overseas Business

Real Estate Business in Bangkok (Thailand)

Continues to face severe business conditions as a result of COVID-19. Center our attention on existing properties for the time being and await market recovery Serviced apartments

Around 50% occupancy compared with the previous year, thanks to the presence of some long-term residents

HotelsContinues to face challenging conditions owing to a downturn to its high number of inbound customers.Designated as an Alternative State Quarantine hotel by the Thai government in November, through which the occupancy rate is expected to rise

Restaurant Business in Shanghai (China)

Since the opening of our first store in 2012, we have operated as many as five stores in the Shanghai region. Despite a return to profitability in 2017, we decided to withdraw the business due to the lack of progress on

the horizon concerning the deteriorating relations between Japan and China and the declining number of Japanese residents in the country.

Control of capital investments

In FY2021.3, due to postponement/control to the extent possible, we are planning for a level lower than in FY2020.3.

In FY2022.3, we anticipate large-scale investment in the opening of the Kumamoto Station Building and in the partial opening of the Nagasaki route of the Kyushu Shinkansen, but we expect a level lower than the initial plan’s three-year total of ¥340.0 billion.

Shama Lakeview Asoke Bangkok（Serviced apartments）

Aloft Bangkok Sukhumvit 11（Hotels）

37.5 28.7

57.6

42.0

0

30

60

90

120

150

Maintenance and upgrade investment Growth investment

FY2020.3Results

（¥bil）

FY2021.3Plan

FY2022.3

95.2

70.7

Postponing/controlling as much as possible in FY2021.3

Average annual amount for three-year capital investment

total of ¥340.0 billion

Capital investment is expected to be below the initially planned

level of ¥340.0 billion

24

Review of Business Portfolio(Business Transfer, Capital Alliance, Etc.)

＋

Sale of business stemming from change in business (market) conditions

Transfer of leasing business (October 2019)Methods of fundraising have diversified against a background of lower market interest rates, and lease accounting standards have changed. Due to these and other factors, we determined that it would be difficult to achieve significant growth.

Transfer of hospital business (April 2020)The location has an excess of hospital beds, and the management environment is expected to remain challenging. We determined that the best course of action was to entrust management to an external medical institution with a strong track record.

Capital alliance toward the realization of sustainable growth

Transfer of a portion of shares of JR Kyushu Drug Eleven Co., Ltd. (May 2020)・Continues to face fierce operating conditions stemming from changes

in the industry・Transferred 51% of shares in TSURUHA Holdings Inc. based on the potential

for greater business efficiency resulting from an improved operating margin and lower procurement costs through economies of scale

（changed to equity-method affiliate）

Transportation segment

Construction segment

Real estate and hotels segment

Retail and restaurant segment

Other segmentOther

businesses

Hospital business

Drugstores

*Share transfer(51%)

Leasing business

2.7% 2.5%

1.8%

0%

1%

2%

3%

4%

5%

FY2018 FY2019 FY2020

Operating margin

Review of Business Portfolio (Acquisition, Capital Alliance, Etc.)

Manbou Corp,Hakata Unmori

OyamaYumekobo, Inc.

Acquisition of businesses that contribute to synergies with existing businesses, the promotion of tourism in Kyushu, and the uncovering of railway demand

Invigorating the Kyushu region through the privatization of joint public-private venture

・Made Oyama Yumekobo, Inc. (Hita City, Oita Prefecture), a hot springsresort operator and umeshu (ume liqueur) manufacturer, a Groupsubsidiary in January 2016. Underwent major reforms to hot springs resort and established a high-end ryokan, which became widely known through its recognition by Michelin and roughly doubled in sales and ADR relative to before the acquisition.

Enhancing profitability through the efforts of well-known local enterprises

・Made Manbou Corp. (Karatsu City, Saga Prefecture), which manufactures and sells squid siu mai dumplings and operates a restaurant, a Group subsidiary in December 2019. This acquisition will contribute to the revival of tourism and ignite railway demand through a greater number of tourists to the region and to the expansion of our sales network and business activities.

・Acquired the operations of Hakata Unmori from Tsuchiya Ltd. (Fukuoka City, Fukuoka Prefecture), a confectionary retailer operated by Group subsidiary JR Kyushu Retail, Inc., in July 2020. We will look to expand its earnings by drawing on the Group’s extensive sales network.

25

Transportation segment

Construction segment

Real estate and hotels segment

Retail and restaurant segment

Other segmentOther

businesses

26

Review of Business Portfolio （New Initiatives）

■ Support the medium- to long-term growth of SMEs and business partners rooted in local communities

■ Expand the Group’s scope of investment and look into potential business acquisitions■ Accelerate efforts to reenergize Kyushu by proactively engaging in investment funds

Potential establishment of a region-based investment fund

Contribute to the sustainable development of the Kyushu Region by advancing “city-building and community development” initiatives

that leverage regional characteristics, centered on sustainable mobility services

Company-related Issues

Region-related Issues

Rising number of small and medium-sized enterprises (SMEs) facing severe

business conditions as a result of COVID-19, lack of successors, labor shortage, natural disasters, etc.

Identify growth areas on the basis of the current COVID-19 business environment

Boost profitability through investments in existing and

peripheral businesses

Engage in new businesses with little or no relevance to existing

businesses

Ⅲ．INITIATIVES TOWARD REALIZING OUR LONG-TERM VISION

27

Initiatives toward Realizing Our Long-Term Vision

28






Taking on the challenge of new mobility services




Accelerate

New


Controlling hiring, mobilizing personnel, strategic human resource development

New Considering private REIT formation


Continue Advancing initiatives centered on MaaS


Cooperation of Business and Financial Strategies

29

Necessity of a certain level of capital in accordance with the perspective of business sustainability. Maintaining ratings, securing sufficient financial strength to purchase superior properties

Advancing “city-building and community development”

initiatives that leverage regional characteristics, centered on

sustainable mobility services

Maintain financial soundness and provide stable shareholder return over the long term

Financial strategies

Advancing growth investment andincreased efficiency

Business strategies

The risks of expanding debt and shrinking capital are increasingly apparent, and accordingly there is limited room for the use of debt

To advance real estate development growth strategy, introducing cyclical investment model. Achievement of both establishment of a foundation for sustained growth and sustained financial soundness.

If stable improvement of the influence of the COVID-19 infection is confirmed, then we will deepen the reevaluation of our business and financial strategies in line with the circumstances at that point.

Balance sheet at end of FY2019/3

Balance sheet at end of second quarter of FY2021/3

Currently (Period with COVID-19)

Period after COVID-19

Implementing growth field focus, M&A investment

Through real estate securitization via private REIT formation, achieve both sustained growth strategies/increase

capital efficiency and sustained financial soundness.

Implementing stable shareholder return over the long term

Aiming for profits and asset expansion with the use of debt

Increase in debt due to the influence of the spread of the

COVID-19 infection（\bil）

Liabilities

380.7

Capital

420.7

Assets

801.4

（\bil）

Liabilities

499.6

Capital

397.2

Assets

896.9

Aiming for sustainable corporate growth and increases in corporate value over the medium to long term

30

Consideration of Private REIT Formation and Development Plans Going Forward

Development at the west entrance of Kagoshima-Chuo Station

Considering integrated development incorporating commercial facilities, offices, and residences

・FY2023/3: Opening under elevated railway tracks

・Spring 2023: Partial opening of new station building

・FY2026/3: Full opening of new station building

Nagasaki Station area development

Establishing foundation for sustained growth in real estate business through cyclical investment model Rolling out new business initiatives through acquisition of development profit and diversification of funding methods Expanding profit opportunities through participation in asset management business

Development plans going forward

Project to utilize the former site of Sunokoelementary school

・Joint venture with the SakurajyujiGroup

・Uses: senior citizens facility, hospital, etc.

・Scheduled opening: January 2024

Project for effective use of site of Fukuoka east government building

・Joint venture with Fukuoka JishoCo., Ltd. and Aso Corporation

・Uses: commerce, offices・Scheduled opening: Spring 2024

Plan for utilizing the space above the tracks at Hakata Station

New urban development plan utilizingthree-dimensional aerial images of thetracks at Hakata Station

Development in the Fukuoka city metropolitan area

Proceed ahead with station area development, public offerings for which we have acquired preferential negotiation rights, and other development plans

Continue to actively pursue promising investment opportunities with the goal of realizing sustainable growth

Considering private REIT formation

Advancement of MaaS ①

31

Implementing verification testing

Strengthening collaboration with other transportation companies

Formed a business alliance with DAIICHI KOUTSU SANGYO Co.,

Ltd. for the development of a joint mobility service (May 2019)

Signed a memorandum for the coordination of regional

transportation services with Nishi-Nippon Railroad Co., Ltd. to

enhance the convenience of transportation services (October 2019)

Commenced an initiative to enhance the convenience of trains and

buses at JR Shimosone Station in March 2020, and an expansion of

this effort will be considered going forward

Implemented a service utilizing the “my route” MaaS app

developed and operated by the Toyota Group in the urban areas

of Fukuoka and Kitakyushu, and Miyazaki

Realized seamless transportation services enabling reservations of

airline tickets and reservations and payments of Shinkansen and

limited-express train tickets through a system integration with ALL

NIPPON AIRWAYS Co., Ltd (October 2020)

Selected for the Ministry of Land, Infrastructure, Transport and Tourism’s

program for enterprises that advance/support MaaS in Japan.

Began verification testing in November toward the establishment of

a business model

Review underway for the date and other details regarding the

implementation of MaaS in Yufuin due to the current business conditions,

despite the establishment of a Verification Testing Committee

BRT restoration segment

Advancement of MaaS ②

Rise of new mobility servicesTrend toward digitalization

MaaS utilization

• Enhancing convenience for community residents/tourists

• Promoting usage of public transportation institutions

• Promoting visits to urban districts / enhancing suitability for excursions

• Collaboration with various transportation modes

• Realizing seamless transportation services

• Collaboration between transportation and commerce/tourism

AimsMajor verification testing initiatives

Establishment of new regional infrastructure toward revitalizing local communities!

“Creating mobility demand” and “building sustainable public transportation networks”

Declining birth rate and aging population, declining population, labor shortage

Decline in people visiting central urban districts+ COVID-19 threat

Opportunity to activate central urban district

Public transportation challenges

32

Background for conducting MaaS verification testing in Miyazaki Prefecture

Pursuit of New Mobility Service with Bus Rapid Transit

33

Finalized the construction of a BRT system to restore the Soeda-Yoake segment, of which operation has been

suspended since July 2017

In addition to the development of BRT-exclusive roads, in certain areas the BRT will operate on ordinary

roads in proximity to residential areas.

Bus stops will be established in areas other than train stations as well for added convenience.

Construction will be completed in approximately three years with an estimated cost of around ¥2.6 billion.

Development of station building and surrounding area (Soeda Station)

Restoring the Hitahikosan Line through the construction of a Bus Rapid Transit (BRT) system

Soeda

Hikosan

Chikuzen-Iwaya

Hoshuyama

Yoake

Hita

Before restoration After restoration

Ordinary roads

Toward Yoake Station

Station systems installed on platform

Former station to beused as a community facility

Toward Jono Station

Toward Yoake Station

Toward Yoakeby ordinary roads

Development of station square

Direct transfer between trains and BRT

Platform

The above image may be subject to change.

Toward Jono Station

Ordinary roads

BRT-exclusiveroads

Please use the link below (Company website) to confirm the assumptions, details of calculation methods etc.

＞Usage status by train line：https://www.jrkyushu.co.jp/company/info/data/senkubetsu.html

Hakata

Oita

Miyazaki

Kagoshima-

chuo

Sasebo

Shin-yatsushiro

Kumamoto

Kurume

Tosu

Saga

Nagasaki

Kokura

Yufuin

11

7

1

2

3

8

5

6

9

13

14

12

10

15

4

Operating profit (loss) FY2020.3

① Saiki – Nobeoka 58.4 (746) 858

② Miyakonojō – Kokubu 42.2 (368) 1,389

③ Chikuhi Line Imari – Karatsu 33.1 (235) 214

④ Miyazaki Airport Line Tayoshi – Miyazaki Airport 1.4 10 1,854

⑤ Chikuho Main Line Keisen – Haruda 20.8 (84) 467

⑥ Hitahikosan Line Tagawa-Gotōji – Yoake 38.7 ― ―　（299）

⑦ Gotoji Line Shin-Iizuka – Tagawa-Gotōji 13.3 (167) 1,272

⑧ Kyudai Main Line Hita – Yufuin 51.5 (96) 1,756

⑨ Karatsu Line Karatsu – Nishi-Karatsu 2.2 (185) 1,024

Higo-Ozu – Miyaji 30.8 ― ―　（1,854）

Miyaji – Bungo-Taketa 34.6 (289) 96　（463）

Bungo-Taketa – Miemachi 23.9 (174) 917（1,331）

Yatsushiro – Hitoyoshi 51.8 (621) 414

Hitoyoshi – Yoshimatsu 35.0 (270) 106

Yoshimatsu – Hayato 37.4 (370) 605

⑫ Misumi Line Uto – Misumi 25.6 (242) 1,187

⑬ Kitto Line Yoshimatsu – Miyakonojō 61.6 (319) 451

⑭ Ibusuki Makurazaki Line Ibusuki – Makurazaki 42.1 (354) 277

Tayoshi – Aburatsu 44.0 (403) 1,133

Aburatsu – Shibushi 42.9 (357) 199

No. Name of line Segment

Operating

kilometers

（Km）

Profitability in

FY2020.3

(¥ million)

Average number of

passengers

(passengers/day)

⑮ Nichinan Line

Nippo Main Line

⑩ Hohi Main Line

⑪ Hisatsu Line

Disclosure of profitability by train line

34

Shared details with the relevant municipal authorities on the difficult situation regarding profitability attributable to the

average number of passengers being less than 2,000 per day

Held discussions with the municipal authorities for certain segments and established sustainability-related measures

https://www.jrkyushu.co.jp/company/info/data/senkubetsu.html

35

In Summary: JR Kyushu’s Mission “Local Community Invigoration”

What the JR Kyushu Group aims to be:A corporate group that invigorates Kyushu, Japan,

and Greater Asia with safety and service as its foundation.

Local Communities

Business Partners

Employees Shareholders

Together with our stakeholders, we will help revitalizethe Kyushu Region, a business foundation of the Group,

toward realizing sustainable improvements in corporate value.

Customers

THANK YOU

36

These materials contain forward-looking statements concerning business

forecasts, targets, etc. of the JR Kyushu Group.

The Company decided on these forward-looking statements based on the

available information, as well as Company estimates and assumptions, at the time

these materials were created. Please note that actual performance may vary

greatly depending on the impact of various factors such as the economic

environment in Kyushu as well as greater Japan and overseas, the condition of

the real estate market, the progress of each individual project, changes in laws

and regulations, and a wide range of other risks.

IR materials can be viewed on our corporate website:

http://www.jrkyushu.co.jp/company/ir_eng/library/earnings/

Forward-Looking Statements

37

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